Financial markets have fallen sharply in reaction to political turmoil in Spain and a fresh strike in Greece against harsh economic conditions.

Police have clashed with protesters against spending cutbacks in Madrid, where the government is under increasing pressure to seek a bailout as its borrowing costs jump back to dangerously high levels.

Greece is also seeing its first major 24-hour strike since the election of a conservative-led coalition government earlier this year.

The FTSE 100 was down 93.4 points at 5,766.3 in mid-afternoon trading, while on the continent Germany’s DAX and France’s CAC 40 both saw 2 per cent wiped off their value. The Dow Jones in New York opened flat after heavy losses yesterday.